Business law in Luxembourg
Business Law in Lithuania
Lithuania, a member of the European Union (EU), offers a dynamic and well-regulated legal framework for businesses. Lithuania's legal system is primarily based on civil law, influenced by German and Russian law. The country has made significant strides in creating a business-friendly environment, making it an attractive destination for local and foreign investors alike.
Here is an overview of key aspects of business law in Lithuania:
1. Legal System
Lithuania's legal system is based on the civil law tradition. The primary sources of law in Lithuania include:
- Constitution of Lithuania: The Constitution is the supreme law of the country and guarantees basic rights, including economic rights related to business operations.
- Civil Code: The Lithuanian Civil Code (2000) regulates private law matters, including contract law, property rights, and torts. It is a fundamental part of Lithuania’s legal framework.
- Commercial Code: The Lithuanian Commercial Code governs business operations, particularly in relation to commercial entities, commercial contracts, and trade practices.
- Tax Law: Lithuania has a comprehensive taxation system governed by the Tax Code, which outlines business taxation rules.
- Labor Law: Lithuania’s labor laws are governed by the Labor Code, which sets out employees' rights and employer obligations.
2. Business Structures in Lithuania
Lithuania recognizes several forms of business entities. The most common types include:
a. Sole Proprietorship (Individuali Įmonė)
- Ownership: A sole proprietorship is owned and operated by a single individual.
- Liability: The owner has unlimited liability for the debts and obligations of the business.
- Registration: The business must be registered with the State Tax Inspectorate (Valstybinė Mokesčių Inspekcija, VMI).
b. Partnership (Ūkinė Bendrija)
- Ownership: Partnerships involve two or more individuals who share ownership and management responsibilities.
- Liability: Partners have unlimited liability for the partnership's debts.
- Types of Partnerships: There are general partnerships and limited partnerships. In limited partnerships, at least one partner has unlimited liability, while others may have limited liability.
c. Limited Liability Company (Uždaroji Akcinė Bendrovė - UAB)
- Ownership: A UAB can have one or more shareholders. Shareholders can be individuals or legal entities.
- Liability: Shareholders' liability is limited to their contributions to the company.
- Capital Requirements: The minimum share capital required for a UAB is €2,500.
- Registration: The company must be registered with the Register of Legal Entities.
d. Public Limited Company (Akcinė Bendrovė - AB)
- Ownership: An AB can be publicly or privately held. The company’s shares can be traded on the stock exchange.
- Liability: Shareholders' liability is limited to their capital contributions.
- Capital Requirements: The minimum share capital required is €40,000.
- Registration: Public limited companies must also be registered with the Register of Legal Entities.
e. Branch or Representative Office
- Branch: Foreign businesses may establish a branch in Lithuania, which operates as an extension of the parent company. It is not a separate legal entity.
- Representative Office: This is a non-commercial entity established to represent a foreign company in Lithuania. It does not engage in commercial transactions.
3. Business Registration and Licensing
To operate a business in Lithuania, all companies must be registered. The registration process involves the following steps:
- Choose the Business Structure: Decide on the legal form of the business entity.
- Register with the Register of Legal Entities: The registration process is done through the Centre of Registers, which is responsible for maintaining the Register of Legal Entities.
- Tax Registration: Companies must register with the State Tax Inspectorate (VMI) for taxation purposes.
- Obtain Necessary Permits or Licenses: Depending on the nature of the business, some sectors may require special licenses or permits (e.g., in healthcare, finance, or energy).
4. Taxation in Lithuania
Lithuania has a well-organized tax system with competitive rates. Key features of the tax system include:
a. Corporate Income Tax (CIT)
- The standard corporate income tax rate in Lithuania is 15%, which is competitive compared to other EU member states.
- Small businesses: Companies with annual revenue of €300,000 or less can apply for a reduced CIT rate of 5%.
- Exemption on Dividends: Dividends paid to foreign shareholders are generally exempt from taxation, provided the parent company holds at least 10% of the subsidiary's shares.
b. Value Added Tax (VAT)
- The standard VAT rate in Lithuania is 21%.
- A reduced VAT rate of 9% applies to certain goods and services, such as books, pharmaceuticals, and passenger transport.
- Some goods and services may be exempt from VAT, such as financial services, health services, and educational services.
c. Personal Income Tax (PIT)
- Personal income tax rates are progressive, with the main rate at 15% for most individuals. A higher rate of 20% applies to high earners with income above a certain threshold.
- Employees in Lithuania pay social security contributions, which include pension, health insurance, and unemployment insurance, typically around 31.18% of the gross salary, with employees contributing 9% and employers contributing the remaining portion.
d. Capital Gains Tax
- Capital gains tax applies to the sale of assets, such as shares and real estate. The tax rate is 15% for individuals.
- Real estate capital gains tax applies if the property is sold within 10 years of purchase, at a rate of 15%.
e. Withholding Tax
- Lithuania applies a withholding tax on certain payments, including dividends, interest, and royalties paid to foreign entities. The general withholding tax rate is 15%, but it may be reduced under double taxation treaties.
5. Labor Law
Lithuania’s Labor Code regulates the employment relationship, providing protections for both employers and employees.
a. Employment Contracts
- Employment contracts may be written or verbal, though written contracts are recommended for clarity.
- Key terms of the contract include job duties, salary, working hours, and the notice period for termination.
b. Working Hours
- The standard workweek in Lithuania is 40 hours (5 days a week, 8 hours per day).
- Employees are entitled to a minimum of 20 days of paid annual leave.
c. Termination
- Employers must provide notice before terminating an employee. The notice period varies, but it typically ranges from 2 weeks to 3 months, depending on the length of employment.
- Employees may be entitled to severance pay if they are dismissed without cause.
d. Health and Safety
- Employers are required to ensure a safe working environment and provide workers' compensation insurance for work-related injuries.
6. Intellectual Property
Lithuania offers strong protection for intellectual property (IP), in line with international conventions such as the Berne Convention and the Paris Convention.
a. Trademarks
- Trademarks in Lithuania are governed by the State Patent Bureau. They can be registered for 10 years and renewed indefinitely.
- Lithuania is also a member of the European Union Intellectual Property Office (EUIPO), meaning that Lithuanian trademarks are also protected in other EU member states.
b. Patents
- Patents in Lithuania are granted for inventions that are new, inventive, and capable of industrial application. They are protected for 20 years.
- The State Patent Bureau manages patent registration.
c. Copyright
- Copyright protection is automatic upon the creation of an original work, such as literature, music, and art.
- The protection period for works is the life of the author plus 70 years.
d. Industrial Designs
- Industrial designs are protected for 25 years in Lithuania, provided they are registered with the State Patent Bureau.
7. Dispute Resolution
Business disputes in Lithuania can be resolved through the court system or through alternative dispute resolution methods:
a. Court System
- The Lithuanian court system consists of district courts, regional courts, and the Supreme Court.
- Commercial disputes are typically handled by the Vilnius District Court or the Vilnius Regional Court, depending on the case’s complexity.
b. Arbitration
- Arbitration is widely used in Lithuania for business disputes. Lithuania is a signatory of the New York Convention, which ensures that arbitral awards are enforceable internationally.
c. Mediation
- Mediation is encouraged as an alternative to litigation, and commercial mediation is gaining popularity in Lithuania.
Conclusion
Lithuania offers a competitive and stable business environment, with a robust legal framework that complies with EU regulations. The country’s favorable tax rates, modern infrastructure, and business-friendly laws make it an attractive destination for entrepreneurs and investors. The legal system, which is based on civil law traditions, provides clear guidelines for business formation, operation, and dispute resolution, making Lithuania a solid choice for both local and foreign businesses.
RELATED Blog
0 comments